Universal to Take a Cut of Zune Sales

November 10th, 2006, 18:30 Posted By: Elven6

Universal stretches out its hand and Microsoft gladly hands over the cash


Universal Music Group wants a piece of the action when it comes to Microsoft's Zune music player. Not only will the company receive a cut of each song sold, but it will also get paid for each Zune player that is sold.

The announcement could set a major precedent for mobile devices that playback music. Not only will Microsoft's Zune be affected, but future players from Apple, Creative, SanDisk and others could see a "tax" placed on player sales.

Apple, which is the dominant player in the music player market, currently doesn't pay music studios for each player sold although that could change in the future. "We were very early in working with Steve on the launch of the iPod and he's been a very good partner and done a lot for the industry. We have a current contract with him and at the end of that I'm sure we'll negotiate," said Doug Morris, chief executive of Universal.

BetaNews was able to provide these additional details concerning the royalty payments:

The formula for these proceeds will be calculated based on the number of Zune units that eventually sell through to consumers. This fact is critically important, especially since it distinguishes the type of royalty payments Microsoft will be making, and how they may be regulated under current US law. The royalty payments, UMG told BetaNews, will not be a percentage of the revenue from retail sales, but instead a flat fee based on the number of Zunes that end up in consumers’ hands...Though the spokesperson would not reveal the formula used to determine the amount of Microsoft payments, we were told it would be a flat fee, not a percentage. The fee will not be $1 per Zune sold, contrary to what The New York Times reported this morning, leaving us with subtle indications that the fee is actually higher.

It's interesting that Microsoft would agree to such terms with Universal given that the Zune will be a money-losing proposition for the company in the short term. Microsoft's 30GB Zune player is set to launch on November 14 at a price of $249. Songs will be priced at 99 cent each while an unlimited Zune Pass subscription will cost $14.99 per month.

http://www.dailytech.com/article.aspx?newsid=4882

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